Rare Earth Sector Gains; Buy With Balter?

By Brendan Conway

There’s a minor fervor Monday for rare-earth firms, sending the sector’s exchange-traded fund to what is now a nearly 5% 2013 gain. Will it last?

Lawrence Balter of Oracle Investment Research, tells Barron’s that he’s hopeful. That, at least, is what he says when it comes to the most closely watched U.S. stock in this sector, rare-earth miner Molycorp (MCP). The stock plunged 67% last year, but at $10 or so — shares are up 10% this morning, to $11.37 — “the stock discounts all the bad news and then some,” the Barron’s Trader column quotes him over the weekend as saying. Balter sets a price target of $50.

“[Molycorp is] ramping up production at a new Mountain Pass, Calif., mine and China — the world’s biggest producer of these metals, like molybendum and titanium — is closing down some mines,” writes the Trader column.

There’s also a note this morning from Commerzbank’s strategists: Mixed in its implications for the sector. Most notably, they’re entertaining the end of China’s near-monopoly:

Ten days ago, the China Ministry of Commerce set the first tranche at 15,501 tons, 27% down on last year’s figure. As a rule, the ministry approves another tranche in the second half of the year. In total, last year’s export quota amounted to 30,996 tons. Meanwhile, Australian company LynasCorp has begun commercial production of rare earths in its controversial plant in Malaysia following considerable delays. This could put an end to China’s quasi monopoly.

About Focus on Funds

As exchange-traded funds and other investing vehicles have ballooned in number, the task of figuring out what works well and what doesn’t has only gotten harder. Barrons.com’s Focus on Funds looks under the hood of ETFs, mutual funds and hedge funds for overlooked values, actionable ideas and the latest pitfalls for fund investors.